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Argentina proposes new debt swap

By Jude Webber in Buenos Aires for the FINANCIAL TIMES

Argentina has told a US appeals court due to rule on whether it must pay more than $1bn to holders of its defaulted debt that its central bank reserves are not an “open till” and the fairest solution to a case that threatens to trigger a fresh sovereign default would be a new debt swap on the same terms as its last.

A group of holders of bonds issued when Argentina restructured almost all of its defaulted debt in 2005 and 2010 said in a separate filing to the Second Circuit Court of Appeals in New York on Friday that institutions with some $500m in judgments and claims against Argentina were indeed prepared to entertain a new offer of a debt swap.
The group named Gramercy, BNP Paribas and Grantham, Mayo Van Otterloo & Co as among those ready to discuss a swap.

The court is reviewing Judge Thomas Griesa’s order last November that Argentina pay $1.33bn to so-called “holdout” creditors led by Elliott , a fund, under the pari passu or “equal treatment” clause in their defaulted bonds.

The judge said the clause required payment in one lump sum to the holdouts at the same time as when holders of restructured debt are paid. Anyone helping Argentina evade the order, including the restructured bonds’ trustee, the Bank of New York Mellon, would be in contempt of court, the judge said.

That raised fears that, with a gun to its head, Argentina might pay no one – triggering a fresh default 12 years after it halted payments on nearly $100bn. It remains locked out of international capital markets and the International Monetary Fund last week began censure proceedings over its faulty official statistics.

Buenos Aires argues that it restructured nearly 93 per cent of its defaulted debt in 2005 and 2010 in a proof of good faith and calls “holdouts” like Elliott “vultures”.

The Second Circuit has called a hearing for February 27, but both sides will have just 15 minutes each, according to court papers, leading all parties involved to submit requests for longer oral arguments.

Eugenio Bruno, an Argentine lawyer advising some bondholders, said that this short hearing “gave the impression the court already knew what they were going to decide so [the parties] are scared. No one knows who is going to win”.


Argentina on Friday claimed that it could not just dip into its central bank reserves to pay, telling the court that upholding Judge Griesa’s order would “open the door to potential claims by holders of more than $43bn in principal and interest of both defaulted and restructured Argentine debt, an amount greater than the reserves”.

Argentina has $42.7bn in reserves but argued that it is “not an open till to pay plaintiffs and other claimants at the order of US courts”.

Argentina is facing other legal challenges, such as that by a group of Italian holdouts at the World Bank’s arbitration tribunal, ICSID, and fears a wave of copycat litigation if Elliott wins.

Exchange bondholders (EBH) told the court in a separate filing that Argentina only had about $19bn of reserves actually available, outstripping some $26.5bn owed to creditors and $23.6bn in likely claims if Judge Griesa’s order were upheld.

“Any actual claim to ‘equal treatment’ would be satisfied by treating all holdout creditors on the same terms as the participants in the Republic’s 2010 exchange offer. Anything else is not equal treatment,” Argentina said.

The EBH said Gramercy “would participate in the new exchange” if some technicalities regarding underlying collateral could be overcome, and the other institutions it listed “would also be willing, subject to a review of the final terms, to participate in a reopening of the 2005 exchange”.
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